What You Need To Know About The Supplemental Property Tax

By Michael Diaz. May 7th 2016

Many people have never heard of the supplemental property tax that was passed by the California State Legislature in 1983. However, if you are a resident of the state of California, then this law could have a significant tax impact on you. Additionally, if you live in California and plan to sell your house, you are legally obligated to explicitly disclose the possible imposition of supplemental property taxes to potential buyers. Therefore, every California resident should become familiar with how this supplemental property tax works. This will prevent unpleasant tax surprises down the road.

Origins Of The Tax

In 1983, the state of California passed The Supplemental Real Property Tax Law. This law created the supplemental property tax which is a tax on the purchase of new property or on new construction to residential property. If you buy a house or perform construction work on your house, you may be subject to the supplemental property tax. You should note that this supplemental tax is in addition to the standard property taxes that you are required to pay if you own property.

Do You Need To Worry About The Tax?

Do you live in California?

If your answer is yes, then you might be subjected to the supplemental property tax.

Have you purchased a house or engaged in home construction post 1983?

If your answer is yes, then you might be subjected to the supplemental property tax.

How The Tax Works

If you answered yes to both of the questions listed above, then you should learn how the supplemental property tax works.

If You Buy A New Home

The county that you live in will send the county assessor to appraise the value of your new house. If the assessor determines that the new assessed value of your house is greater than the previous assessed value, then you will have to pay the supplemental property tax.

On the other hand, if the assessor finds that the assessed value of the house has decreased, you will be issued a tax refund. Note that it is relatively unlikely that the assessor will determine that the assessed value has fallen. Therefore, you should expect to pay the supplemental property tax if you purchase a new house.

If You Do Construction On Your Home

Once the construction is completed, your county will send the county assessor to do a new appraisal of your house. If the assessor finds that the performed construction adds to the value of the house, then your assessed value will increase and you will have to pay the supplemental property tax.

Since people do not generally engage in residential construction that will decrease the value of their home, it is extremely unlikely that the assessed value of your house will fall after the completion of construction. Therefore, you should also expect to pay the supplemental property tax if you engage in construction on your home.

Tax Structure

Unlike standard property taxes, which must be paid every year, the supplemental property tax is a one-time tax. Therefore, once you pay the tax, you will not be subjected to further supplemental taxes unless you buy a new house or do additional home construction.

According to the Los Angeles County Property Tax Portal, the dollar amount of the supplemental property taxes is prorated based on the number of months left in the year after the purchase date or the completed construction date. Depending on when this date occurs, you will receive one or two supplemental tax bills.

If this date occurs between January 1st and May 31st, you will be issued two supplemental tax bills. One is for the remainder of the year and the other is for the fiscal year that follows.

If this date occurs between June 1st and December 31st, you will receive one supplemental tax bill that covers the fiscal year following the sale or construction completion date.

How To Avoid Paying The Supplemental Property Tax

For those determined to avoid paying this tax, there are a few strategies that you can pursue.

Assessment Appeal

If you believe that the county assessor incorrectly appraised the value of your house, you can file an assessment appeal. However, this will require you to file a lot of paperwork and go to an administrative hearing to plead your case to a board of supervisors. If the board of supervisors rejects your appeal, you might be able to challenge the rejection in court.

This process will cost you a lot of time and, possibly, a lot of money. Therefore, it might not be worth filing an appeal unless you have a rock solid case. You should speak to a property tax attorney before going down this path.

Homeowners’ Exemption

Certain residential properties might be eligible for a homeowners’ tax exemption. For example, if you are the owner of your home and it is your principal place of residence, you can qualify for this exemption. If you are granted an exemption, there is a decent chance that you will not be subject to supplemental property taxes. However, if you purchase a secondary or vacation home or do construction to either type of home, you will likely have to pay the supplemental property tax.

So if you live in California and are planning on buying a house or doing residential construction, you should expect to receive a bill for supplemental property tax. The best way to avoid this tax is to apply for a homeowners’ tax exemption. However, there are restrictions to qualifying for this exemption. Keep this information in mind the next time you are on the market for a house or are planning construction work on your home.

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